Services Trade Restrictiveness Index. Raed Safadi

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1 Services Trade Restrictiveness Index Raed Safadi

2 Background: importance of services Services share of GDP Services share of total trade OECD Trade & Agriculture 2

3 Cross-border trade in services by sector, OECD Exports 2007 Imports 2006 OECD Trade & Agriculture 3

4 The purpose of the STRI Identify and catalogue barriers to trade in services Identify the low-hanging fruits of policy reform - sequencing Ex ante analysis of economic and social impact of reform Better policies! OECD Trade & Agriculture 4

5 STRI sector coverage Pilot sectors Computer services Construction Professional services Accounting, architecture, engineering, legal services Telecommunications New sectors Transport Air, Maritime, Rail, Road Courier Distribution Audiovisual services Motion picture, broadcasting, sound recording OECD Trade & Agriculture 5

6 The STRI outputs A regulatory database Composite indices OECD Trade & Agriculture 6

7 The regulatory database OECD Trade & Agriculture 7

8 The STRI Regulatory Database: Five policy areas 1. Restrictions on foreign ownership and other market entry conditions includes limitations on foreign ownership and screening requirements in the foreign country, nationality and residency requirements for the board of directors, quotas regarding the number of firms permitted to practice and conditions regarding subsequent transfer of capital. 2. Restrictions on the movement of people includes measures affecting the movement of, including in the form of quotas, labour market tests and duration of stay for different categories of providers (intra-corporate transferees, contractual and independent services suppliers). 3. Other discriminatory measures and international standards includes measures related to national treatment, discrimination in taxes, subsidies and government procurement, and the lack of adoption of international standards in the foreign country are found under this policy area. 4. Barriers to competition and public ownership contains first, discriminatory measures where foreign suppliers rights under the competition law are inferior to that of local companies, and stateowned enterprise privileges that may put foreign entrants at a competitive disadvantage. The second category of measures relates to regulation of dominant firms with the objective to ensure market access on reasonable terms for new entrants, including foreign firms. 5. Regulatory transparency and administrative requirements includes measures relating to regulatory efficiency, such as the timely publication of regulations, the availability of single contact points and of a period for comments on draft regulations, the time necessary to obtain a visa and the costs related to registering a company. OECD Trade & Agriculture 8

9 Constructing the regulatory database 1. The OECD Secretariat fills in the database for each sector and country using national laws and regulations, OECD surveys and World Bank surveys 2. The Member country comments and verifies 3. Peer review 4. Continuously updated OECD Trade & Agriculture 9

10 The STRI indices OECD Trade & Agriculture 10

11 Guiding principle Make everything as simple as possible, but not simpler. (Albert Einstein) OECD Trade & Agriculture 11

12 Approaches to quantifying barriers to trade in services Top Down Observation of trade data Estimate discrepancies in prices or trade flows Bottom Up STRI Weights How important is each measure? Empirical index number Relation to policies How much does each measure contribute to the index? Scores Assigning numbers to observed policies Observation of policies Which to include? OECD Trade & Agriculture 12

13 Scoring of measures Assigning numbers to qualitative information Binary scores (0 and 1) Refinements: Break complex or continuous measures into several thresholds Construct nested layers/hierarchies of measures Construct regulatory packages when measures are complementary OECD Trade & Agriculture 13

14 Example of thresholds: Foreign equity limits Thresholds Score if max 49% Score if max is 65% No foreign equity 0 0 Less than a third 0 0 Less than half 1 0 Less than two thirds 1 1 Less than 100% 1 1 OECD Trade & Agriculture 14

15 Example of hierarchy Foreign equity Not allowed Allowed Restr. on board members Quotas Screening OECD Trade & Agriculture 15

16 Weights Ideal: should capture the marginal contribution to trade cost; Requires better coverage and quality of services trade and FDI data than is currently available; Meanwhile: Weights based on expert judgement; Robustness checks: calculate the STRIs with equal weights, principal component analysis, Bayesian econometrics and random weights OECD Trade & Agriculture 16

17 The indices (preliminary, telecoms) OECD Trade & Agriculture 17